Wednesday, January 21, 2009

All Stock Prices are NOT created Equal

Quite a few key information shared in this blog is actually so fundamental that they should be taught in school.  Until today I am still very puzzled that even the best financial consultant and market advisor do not share these with their highest paying client.  Anyway ... here comes another one ...

Says I am using the lowest fee broker in town and I have RM 16,000 at hand as my Minimum Optimized Trading Size.  Now I am ready to buy, hurray !  And my target is to make money the fatest way !!  In One Price Movement or One Tick !!

Case 1 : Buy at RM 1.00 : 
When it goes up to RM 1.01 I have earned RM 99.20 or 0.62%

Case 2 : Buy at RM 2.00 : 
When it goes up to RM 2.01 I have earned RM 19.20 or 0.12%

Case 3 : Buy at RM 3.00 : 
When it goes up to RM 3.02 I have earned RM 45.87 or 0.29%

Case 4 : Buy at RM 4.00 : 
When it goes up to RM 4.02 I have earned RM 19.20 or 0.12%

Case 5 : Buy at RM 5.00 : 
When it goes up to RM 5.05 I have earned RM 99.20 or 0.62%

Case 6 : Buy at RM 6.00 : 
When it goes up to RM 6.05 I have earned RM 72.53 or 0.45%

Have you seen it yet ?

Depending on the stock price you are buying, 
the chances for you to 
earn the same amount of money is 
Different !!

For some of you who are not well wise in stock price movement, the following is the One Tick or Once Price movement observed in KLSE or Bursa Malaysia

As you may also observe, there is NO single Trend showing if buying lower price or higher price is better.  The return rate seems like going down and up and then down again.

Why is this happening and most importantly, what can you do about this in your investment strategy ?  Please share your views in comment area.

I will leave this one open for a while as this is the ultimate exercise for my readers ...  Happy Chinese New Year !!


Kris said...

Position Sizing is very important to make sure that the brokerage don't squeeze out your profit.

Michael Tsen said...

I think you are refering to the MOTS I blog about ..